Michael Winship: For whom the bailout tolls

Tuesday

Oct 28, 2008 at 12:01 AMOct 28, 2008 at 9:14 PM

During the stock market crash in 1929, stories abounded of Wall Street brokers rushing to their office windows and leaping to their deaths. But according to the late John Kenneth Galbraith and other economic historians, those accounts of suicide were, by and large, fairy tales.

Michael Winship

During the stock market crash in 1929, stories abounded of Wall Street brokers rushing to their office windows and leaping to their deaths. But according to the late John Kenneth Galbraith and other economic historians, those accounts of suicide were, by and large, fairy tales.

Nonetheless, the myth of those fatal plunges, like so many urban legends, is hard to shake. With more than a drop of cold blood, some have asked why, during this current fiscal crisis, we haven't seen similar tragedies in the ranks of high finance.

A close look at the recent government bailouts may explain. The fat cats at the top had nothing to worry their pretty little whiskers about. Not only have most of their businesses been saved, for now at least, but they've already been pretty successful at protecting their high-rolling lifestyles, and finding bailout loopholes that allow them to keep hauling in the big bucks.

There are "claw back" provisions in the big $700 billion bailout passed by Congress three weeks ago, requiring that financial institutions get money back from their senior executives, if the payments were "based on statements of earnings, gains, or other criteria that are later proven to be materially inaccurate."

But the executive pay limits in the legislation apparently have so many loopholes you could fly a fleet of Gulfstream corporate jets through them. Oregon Congressman Peter de Fazio caught at least seven "that will protect their outrageous paychecks and golden parachutes," he wrote fellow Democratic House members, adding, "Imagine how many more loopholes the Wall Street lawyers will find."

No doubt the nine banks into which the U.S. is also planning to inject billions in capital — again, all taxpayer dollars — have their lawyers searching for those escape hatches. Writing in the Seattle Post Intelligencer, Sarah Anderson and Sam Pizzigati of the Institute for Policy Studies calculated that last year the CEOs of those nine banks took home "on average, $32.2 million each, nearly triple the average CEO pay at the 500 biggest U.S. companies. This is more than $600,000 a week."

Bloomberg News columnist Jonathan Weil figures that since the start of fiscal 2004, the once mighty five of Wall Street — Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns — lost around $83 billion in stock market value. But they reported employee compensation of around $239 billion. In other words, the engineers who dug this disastrous hole paid themselves almost three dollars for every dollar they lost.

So the masters of the universe are just fine, thank you, in no small part due to the tolerance and largesse of their guru, Treasury Secretary Henry Paulson, late of Goldman Sachs, where Forbes magazine reports that during a 32-year career he accumulated more than $700 million. He said limiting compensation too punitively might prevent some institutions from participating in his plan to save the economy.

No, the people suffering are the nearly 800,000 out of work so far this year. More families with children are homeless. Delinquencies and foreclosures are at their highest in nearly three decades, and the Los Angeles Times reported earlier this month that "worries about home foreclosures, job losses and plunging stock prices have sparked a surge in mental health problems."

There are some happier stories. Tom Dart, the sheriff of Cook County, Ill., suspended all foreclosure evictions because they were throwing into the street tenants of buildings who had nothing to do with their landlords' inability to make payments.

Or Jocelyn Voltaire, an immigrant from Haiti, about to lose her home after the death of her eldest son, a Marine in Iraq who had been sending her money to help meet the mortgage. After seeing a news report, members of the antiwar group CodePink raised $30,000 to save Voltaire's house.

But so far the government and the businesses bailed out haven't looked very hard for ways to help. They've done little or nothing and it's every man for himself, devil take the hindmost.

In his history of the 1929 market crash, John Kenneth Galbraith wrote, "The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil."

In other words, virtually non-existent, somewhere around zero. In other words, my fellow Americans, look out below. Do not ask for whom the bailout tolls. It tolls for thee.